Traders turn to U.S. economic data as questions of spring pullback persist

TORONTO — Stock markets face another week of uncertainty as traders hone in on economic data to get a sense of whether the U.S. economy is headed for another bout of turbulence.

“We’ve reached a point where markets seem to be reasonably priced — they’re not way overbought, they’re not way oversold — and people are struggling to find out where we go from here,” said Colin Cieszynski, market analyst at CMC Markets.

Blame it partly on springtime, which has been characterized for the past two years as a period of pullback for markets as overenthusiasm in the early months collided with caution.

Markets have been struggling to find some direction, but so far haven’t moved much.

On Friday, the S&P/TSX composite index ended the week up a mere 0.89 per cent after six weeks of declines, while on Wall Street the Dow Jones Industrial Average lifted 1.4 per cent.

Much of this week’s attention will go towards the U.S. gross domestic product numbers slated to be released on Friday, which should give markets a better sense of direction, Cieszynski said.

Expectations are for 2.5 per cent annualized U.S. GDP, a forecast that has strengthened in recent weeks after consumer spending numbers beat predictions, CIBC Economics said in its weekly outlook.

However, the markets could still wait until the U.S. jobs report is released May 4 before reaching a conclusion on the direction to bet.

Meanwhile, domestic earnings season picks up steam this week with Canadian National Railway (TSX:CNR), Canfor (TSX:CFP), Encana (TSX:ECA) and Shoppers Drug Mart (TSX:SC) on the calendar.

Other data from the U.S. includes new home sales for March, released Monday. Consensus estimates say they will rise 2.2 per cent, to 320,000 annualized units, according to data provided by BMO Capital Markets.

The evidence will likely become apparent in the S&P Case-Shiller Home Price Index, due Tuesday, Lee said.

Also on the schedule are U.S. Durable Goods Orders on Wednesday, with consensus estimates predicting a decline of 1.5 per cent for March, reversing the previous month partly on a drop in aircraft orders for Boeing.

The Federal Open Market Committee’s policy announcement on Wednesday is expected to show the fed is holding steady in its outlook for the U.S. economy.

“It’s also hard to see the merit of talking about more term extension activity with bond yields so low already, so at most, they might conditionally pledge to do that if necessary,” wrote CIBC chief economist Avery Shenfeld in a note.

In Canada, data will be sparse for the week, with retail sales on Tuesday the only major report on the schedule. Consensus expectations are for a 0.2 per cent increase, according to BMO Capital Markets. Auto sales are likely to be a weight on the numbers, overshadowed by higher gasoline prices.

Wholesale trade numbers will be released in Canada on Monday.

Concerns about heavily indebted Spain will also continue to weigh on market sentiment, said John Johnson, chief strategist at Davis Rea Ltd.

“We’re finding out that austerity is a negative in the sense that it is crushing the economies and making deficits even bigger,” Johnson said.

“They need to restructure their economies and write down debt.”

Johnson said Europe is far away from resolving those problems, describing it as being like “an endless trip to the dentist.”

“It seems there is a real issue over whether a real recovery is taking hold and how confident we can be.”